Segment Information, Operations By Geographic Area And Customer Concentration

9 Months Ended

Sep. 29, 2013

Segment Reporting [Abstract]

Segment Information, Operations By Geographic Area And Customer Concentration

Segment Information, Operations by Geographic Area and Significant Customers

Operating segments are components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company operates in three specific business units: retail, commercial, and service provider. The retail business unit consists of high performance, dependable and easy-to-use home networking, storage and digital media products to connect people with the Internet and their content and devices. The commercial business unit consists of business networking, storage and security solutions without the cost and complexity of Big IT. The service provider business unit consists of made-to-order and retail proven, whole home networking solutions sold to service providers for sale to their customers. Each business unit is managed by a Senior Vice President/General Manager. The Company believes this structure enables it to better focus its efforts on the Company’s core customer segments and allows it to be more nimble and opportunistic as a company overall.

In the second quarter of 2012, the CEO began temporarily serving as interim General Manager of the commercial business unit due to the previous general manager's departure from the Company. The CEO continued serving as interim general manager until a replacement was hired in July 2013.

The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income. Segment contribution income includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate costs, such as corporate research and development, general and administrative costs, stock-based compensation expenses, amortization of intangibles, acquisition-related integration costs, restructuring costs, litigation reserves and interest and other income, net. The Company does not evaluate operating segments using discrete asset information.

Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows (in thousands, except percentage data):

	Three Months Ended						Nine Months Ended
	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Net revenues:
Retail	$	130,301		$	123,457		$	374,018		$	366,258
Commercial	76,957			79,240			236,254			234,498
Service provider	154,637			112,513			402,741			360,729
Total net revenues	361,895			315,210			1,013,013			961,485
Contribution income:
Retail	$	19,317		$	17,759		$	53,696		$	62,590
Retail contribution margin	14.8		%	14.4		%	14.4		%	17.1		%
Commercial	16,903			19,998			51,190			52,272
Commercial contribution margin	22.0		%	25.2		%	21.7		%	22.3		%
Service Provider	12,474			11,283			36,055			33,822
Service Provider contribution margin	8.1		%	10.0		%	9.0		%	9.4		%
Total segment contribution income	48,694			49,040			140,941			148,684
Corporate and unallocated costs	(12,800		)	(12,866		)	(38,824		)	(36,430		)
Amortization of intangible assets (1)	(4,439		)	(1,354		)	(10,782		)	(3,317		)
Stock-based compensation expense	(4,511		)	(4,019		)	(12,492		)	(10,806		)
Restructuring and other charges	(400		)	—			(1,957		)	—
Acquisition-related expense	—			—			(924		)	—
Impact to cost of sales from acquisition accounting adjustments to inventory	—			—			(568		)	—
Litigation reserves, net	(305		)	(269		)	(3,908		)	(420		)
Impairment charges	(2,000		)	—			(2,000		)	—
Interest income	71			109			315			344
Other income, net	511			3,070			37			2,823
Income before income taxes	$	24,821		$	33,711		$	69,838		$	100,878

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(1) Amount excludes amortization expense related to patents within purchased intangible assets in costs of revenues.

The Company conducts business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”) and Asia Pacific ("APAC"). Net revenue by geography comprises gross revenue less such items as end-user customer rebates and other sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, sales returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012
United States	$	214,755	$	172,926	$	564,604	$	495,717
Americas (excluding U.S.)	5,732		4,721		13,407		13,723
United Kingdom	34,094		45,127		116,924		141,731
EMEA (excluding U.K.)	63,126		59,241		195,788		205,533
APAC	44,188		33,195		122,290		104,781
Total net revenue	$	361,895	$	315,210	$	1,013,013	$	961,485

Long-lived assets, comprising fixed assets, are reported based on the location of the asset. Long-lived assets by geographic location are as follows (in thousands):

	September 29, 2013		December 31, 2012
United States	$	10,901	$	9,898
Americas (excluding U.S.)	2,079		36
EMEA	986		1,173
China	9,564		6,763
APAC (excluding China)	1,920		1,155
	$	25,450	$	19,025

No single customer accounted for greater than 10% of net revenues in the three and nine months ended September 29, 2013 and three months ended September 30, 2012. Virgin Media Limited and Affiliates represented 10% of net revenues during the nine months ended September 30, 2012.